US Federal Reserve (Fed) Chair Jerome Powell made an appeal for higher interest rates on Thursday while US economic growth was revised upward sharply. Powell’s words alongside the strong economic data supported the view among market participants that more rate hikes are likely and consequently bond yields surged after the release of the gross domestic product (GDP) data.
Powell said Thursday at a conference in Spain that two or more interest rate hikes this year will likely be necessary to get inflation back down below the central bank’s 2% target. Reiterating comments made the day before, he said rate increases at back-to-back policy meetings is a possibility, even though the Fed chose to pause its rate hiking cycle earlier this month.
Later on Thursday, revised GDP data showed the US economy is stronger than anticipated. First-quarter GDP was revised upward to 2% from previously 1.3% with household spending rising at 4.2%, its fastest pace in almost two years. Latest data from the US labour market further reinforced the view that the US economy is still strong. Initial jobless claims, fell last week by 26,000 to 239,000, the steepest decline since October 2021.
In New York, the major stock indices could not find a clear direction. The Dow Jones Industrial closed 0.80% higher at 34,122.42 points and the S&P 500 rose 0.45% to 4,396.44 points, while the Nasdaq-100, however, fell by 0.16% to 14,939.95 points. The US benchmark KBW Bank Index jumped 1.82% after the largest Wall Street banks all received passing results in the Fed’s latest annual stress test.
Stock markets in the Asia-Pacific region were likewise mixed in early Friday trading. Pressuring markets were Chinese manufacturing data that showed manufacturing in the world’s second-largest economy contracted for a third month in a row in June. The Hang Seng Index gained 0.2% and the Shanghai Composite was trading up 0.8%. Japan’s Nikkei 225 lost 0.4% after Finance Minister Shunichi Suzuki hinted at potential monetary intervention due to the yen weakening to a seven-month low versus the US dollar. South Korea’s Kopsi was up 0.6% and Australia’s S&P/ASX 200 was trading marginally lower.
In Europe, inflation data releases were flashing mixed signals Thursday. Spain showed some signs that the European’s Central Bank’s aggressive rate hikes are having some effect. The fourth-largest economy in the euro area posted its slowest inflation rate in more than 2 years at 1.6% on the year in June, falling below the ECB's 2% target. Nevertheless, inflation was reaccelerating in the eurozone’s largest economy with German prices jumping 6.8% on the year in June, up from 6.3% the month before.
Adding to the narrative that price growth is on its way down in Europe were the results of an inflation survey conducted by the European Commission released Thursday. The index dropped to 6.1 points from 12.1 points in the previous month’s survey. The result suggests the high rate of price increases on the continent is not becoming entrenched among market participants, which may aid the ECB in returning to its 2% target.
Corporate news in focus: Porsche Automobil Holding annual general meeting.
Economic data in focus: UK GDP (08:00 CET), German retail sales (08:00), Switzerland’s KOF Economic Barometer (09:00), German unemployment (09:55), eurozone Consumer Price Index (11:00), US Personal Consumption Expenditures (14:30), University of Michigan Consumer Sentiment (16:00).
Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.